Cheque Bounce in Used Machinery Sale: Seller's Remedies

You sold a used machine, handed over the tooling and the manuals, and took a cheque for the balance. Three days later the bank returns it stamped "funds insufficient". The buyer stops answering calls, and you are left holding an invoice, a signed delivery challan and a piece of paper that has suddenly become the foundation of a criminal case. A cheque bounce for machinery sale is rarely a pure Section 138 problem: you also have to prove delivery, prove the price you agreed, identify who signed the cheque, and decide whether you want the money, the machine back, or both.

Sale of Old Machinery on a Cheque

A sale of second-hand plant and machinery is a sale of goods under the Sale of Goods Act, 1930. Payment by cheque is treated as conditional payment: the debt is not extinguished when you accept the cheque, and it revives the moment the cheque is dishonoured. That principle matters because Section 138 of the Negotiable Instruments Act, 1881 punishes the dishonour of a cheque drawn for the discharge, in whole or in part, of any debt or other liability. If no debt existed, the section does not apply.

Two features of machinery sales create most of the trouble. The price is often negotiated orally and confirmed by a quotation or a WhatsApp message rather than a formal purchase order. And the buyer takes delivery immediately, so the seller's only leverage after the sale is the cheque itself. An "as is where is" condition, common in second-hand equipment sales, protects the seller on quality; it does not cancel the buyer's obligation to pay.

Where the buyer is a company, the cheque will usually be signed by a director or an authorised signatory. Section 141 makes the company and the persons in charge of its business liable, which is why the demand notice must be addressed to the company as well as to the signatory.

When the Buyer Stops Payment

Bank return memos in machinery deals carry a small set of reasons: insufficient funds, payment stopped by the drawer, account closed, signature mismatch, or "present again". The first two are the ordinary case. Courts have consistently read Section 138 to cover a drawer who closes the account or instructs his bank to stop payment, because the section targets the drawer's conduct rather than the state of the ledger on a particular morning.

"Present again" is different. It is not a dishonour; it is the bank asking you to re-present the instrument. The 30-day clock for the notice starts from the dishonour memo you finally act on, and the cheque must still be within its three-month validity when presented.

Expect the buyer to defend on one of four lines: that the cheque was given as security or was blank when signed; that the machine never reached him, or reached him in a condition that justified rejection; that the price was renegotiated downwards after inspection; or that he has a set-off for repairs. Section 139 helps you here. It presumes that the holder received the cheque for the discharge of a legally enforceable debt, and the Supreme Court in Rangappa v. Sri Mohan held that the presumption covers the existence of the debt itself. The buyer can rebut that presumption, but he must lead evidence; a bare denial is not enough. A cheque given as security does not escape Section 138 either, provided a debt was due on the date it was presented.

Notice, Limitation and the Correct Court

The sequence is unforgiving, and it is where most sellers lose good cases.

• Present the cheque within three months of the date written on it.
• Send a written demand notice within 30 days of the date you receive the bank's return memo.
• The drawer then has 15 days from receipt of the notice to pay. Do not file before that window closes.
• File the complaint within one month of the day the 15-day period expires.

The notice must demand the cheque amount and call upon the drawer to pay within 15 days. Send it by registered post with acknowledgement due and by email; keep the postal receipt and the tracking record. A notice sent to the address that appears on the invoice, the delivery challan and the correspondence is difficult to deny.

On jurisdiction, the 2015 amendment to Section 142 provides that the complaint is filed before the court within whose local jurisdiction the branch of the bank where the payee maintains the account is situated. For a Coimbatore seller receiving a Bengaluru cheque, that usually means filing at home. Do not simply file where the drawer's bank sits, which was the older position and remains a common error.

Two provisions make the criminal route commercially useful. Section 143A allows the magistrate, at the trial stage, to order interim compensation of up to 20% of the cheque amount. Section 148 allows the appellate court to require the appellant to deposit at least 20% of the fine or compensation awarded. Section 145 permits evidence by affidavit, and Section 143 provides for summary trial. The offence is punishable with imprisonment up to two years, or a fine up to twice the cheque amount, or both, and it is compoundable under Section 147, which is why most of these cases end in a settlement and a demand draft rather than a jail term.

Proving Delivery and Price in a Cheque Bounce for Machinery Sale

Your case rises and falls on paper. The cheque proves the amount but not the transaction behind it, and the buyer's favourite defence is that the machine was never delivered or was returned.

Documents to keep

Keep the quotation or offer, the purchase order if any, the GST invoice, the delivery challan signed by the buyer or his representative, the transporter's lorry receipt or e-way bill, the gate entry record at the buyer's factory, the installation or commissioning note, and the WhatsApp or email trail in which the price was fixed. Time-stamped photographs of the machine being loaded and unloaded help more than most sellers expect. If the buyer paid part of the price by RTGS or UPI, the bank statement is strong corroboration that a sale at that price took place.

Common mistakes sellers make

Filing on a cheque that was held back as a post-dated instrument and presented after its validity had run out. Sending the notice to the buyer's factory address when the registered office is elsewhere and the company is the drawer. Accepting a part payment after notice without a written acknowledgement, then arguing about the cause of action. And treating the criminal complaint as a recovery execution. It is pressure, not execution; the money comes from settlement or from compensation ordered by the court.

The Worked Scenario: A ₹6.5 Lakh Cheque for a Used CNC Lathe

Prakash runs a small fabrication unit in Coimbatore, registered on the Udyam portal as a micro enterprise. In February 2026 he sells a used CNC lathe to a buyer in Peenya, Bengaluru for ₹8,50,000. The buyer pays ₹2,00,000 by RTGS and gives a cheque for ₹6,50,000 dated 12 March 2026, drawn on his Bengaluru bank branch. The machine is loaded on 14 March against a delivery challan signed by the buyer's supervisor, and the lorry receipt names the buyer's factory as the destination.

Prakash deposits the cheque on 20 March. It is returned on 23 March with the memo "funds insufficient". He sends the demand notice on 16 April by registered post and email; it is delivered on 19 April. The 15-day window closes on 4 May with no payment. He files the complaint on 28 May before the court at Coimbatore, where his bank branch is located, and applies under Section 143A for interim compensation of up to 20% of ₹6,50,000, that is ₹1,30,000. The buyer's defence is that the lathe was worn out and that the price was renegotiated to ₹6,00,000 after inspection. He has no document showing any renegotiation, and the RTGS payment of ₹2,00,000 matches the original invoice. The Section 139 presumption, plus the signed challan and the lorry receipt, put the buyer in the position of having to prove his own story.

Prakash also has a parallel civil remedy: a summary suit for recovery of the balance. He may file it, because the criminal complaint does not bar a civil suit. He cannot recover the same ₹6,50,000 twice, however; any amount received in one proceeding must be adjusted against the other.

Repossession and Section 138 Together

Sellers of machinery often ask whether they can simply go and take the machine back. The answer depends on when ownership passed. Under the Sale of Goods Act, 1930, property in specific goods in a deliverable state passes when the contract is made, unless the parties agree otherwise. If your invoice or contract carries a retention-of-title clause, under which ownership passes only on full payment, you have a contractual basis to reclaim the goods. Without such a clause, the machine belongs to the buyer and the unpaid price is a debt.

Even with a clause, do not send a recovery team to the buyer's factory. Forcible entry or removal invites a police complaint against you and weakens your Section 138 case. The lawful routes are a civil suit for recovery, a suit for return of goods where title was retained, or an application for attachment before judgment where you can show the buyer is disposing of assets. Section 138 itself gives you no right over the machine; it gives you a criminal remedy against the drawer.

Your checklist

• Verify the cheque is within three months of its date and that the return memo names the actual reason

• Send the demand notice within 30 days of the memo, by registered post with acknowledgement due and by email, to the drawer and to the company if the drawer is a company

• Wait out the full 15 days from receipt before filing, and file within one month after that

• File before the court where your own bank branch is located, attaching the bank memos, invoice, challan, lorry receipt and bank statement

• Apply under Section 143A for interim compensation of up to 20% of the cheque amount at the earliest hearing

• Decide whether to run a civil recovery suit in parallel, and record the amounts claimed in each so there is no double recovery

• Check whether the sale qualifies as a supply of goods for a reference to the MSE Facilitation Council under the MSMED Act, 2006; a one-off sale of used plant may not, so take a view with your counsel before filing there

If you are holding a dishonoured cheque for machinery today, the next step is to fix four dates: the date on the cheque, the date of the return memo, the date the notice was received, and the last date for filing. If any of those windows is still open, send the notice this week and keep the postal proof. If a window has closed, ask a lawyer whether a civil recovery suit, or a fresh Section 138 complaint on a new cause of action, is still available, because limitation does not forgive a missed month.

This article is for general information only and is not legal advice. Consult a qualified professional for your specific facts.